Chapter 3ELECTRONIC DATA INTERCHANGE

INTRODUCTION, STANDARDS AND IMPLEMENTATION

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Learning Objectives

• Introduction to conventional purchasing process

• What is Electronic Data Interchange?• Building Blocks of EDI systems• Value Added Networks• Benefits of EDI Systems

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Conventional Trading ProcessEither the inventory management system based on re-order policy on the

examination of the stock levels raises the purchase requisition for the

item or, a department raises the requirement for some items.

The information on the requisition forms is entered into the purchase

processing system.

Many a times there are transcription errors in the process. Thus, editing and

correction of the data is needed.

Once the correct requisition information has been updated in the

computerized purchase system, the purchase management system

scans the suppliers’ databases for the potential suppliers and prints the

purchase requisitions (PRs), requesting the price and delivery

quotation in the name of screened suppliers. 3

Conventional Trading Process- contd.

The purchase requests are transmitted to the suppliers either through phone/fax or

through mail/courier service.

The information printed on the purchase requests may be keyed in by the suppliers in

their computerized systems for processing and, a quotation against the purchase

request may be prepared and printed.

The quotation from the supplier is transmitted using the traditional paper transmission

mechanisms such as fax/couriers/mail services.

All quotations received from suppliers against a purchase request are entered into the

manufacturer’s automated system and edited and corrected to remove any

transcription errors.

Based on the quotations received, the systems may process using structured

(automated) or semi-structured (generate output to assist the decision-maker)

mechanism and select the candidate for ordering. 4

Conventional Trading Process- contd.The purchase requests are transmitted to the suppliers either through phone/fax or

through mail/courier service.

The information printed on the purchase requests may be keyed in by the suppliers in

their computerized systems for processing and, a quotation against the purchase

request may be prepared and printed.

The quotation from the supplier is transmitted using the traditional paper transmission

mechanisms such as fax/couriers/mail services.

All quotations received from suppliers against a purchase request are entered into the

manufacturer’s automated system and edited and corrected to remove any

transcription errors.

Based on the quotations received, the systems may process using structured

(automated) or semi-structured (generate output to assist the decision-maker)

mechanism and select the candidate for ordering. 5

Conventional Trading Process- contd.

The order is then printed on a standardized order-form along with the terms and

conditions for delivery and payment.

The printed order is mailed, couriered or faxed to the supplier.

The supplier, on receiving the order, enters it into the computer system and matches the

order with the quotation submitted.

If every thing is found in order, it raises an internal sales-order. Since, the raising of

internal sales-order requires data entry/editing of the information from the

received purchase-order, matching and processing of the order and then printing

of the internal sales-order, it often becomes a source of delay.

In extreme cases, if the prices/terms on quotation and the purchase order do not match,

it may require repetition of some of the earlier steps, or

re-negotiation/clarifications causing further delays. 6

Conventional Trading Process- contd.The internal sales-order is used for generating several documents and forms for

locating and identifying the appropriate stocks.

In cases where such stocks are not readily available, it may lead to the raising of a

work-order or schedule to the production shop.

The appropriate stock is thus picked and packed for sending it to the buyer along with

the packing list and advance shipping note and advice.

The process, at times, may lead to a partial fulfillment of the order. In that case, the

customer needs to be informed of the short-delivery and order-status in writing.

With the goods, the internal sales-order processing system also prepares a delivery

note. The goods packed in the previous step are sent using an appropriate

dispatch mechanism.

The delivery/dispatch note is sent to the buyer using postal mail/courier/fax services. 7

Conventional Trading Process- contd.The buyer-receiving yard, on receiving the goods and advices, compares and

inspects the goods, and prepares a goods-receipt note, containing the

purchase-order number against which the goods are received, marking

the acceptance and rejection of the items shipped.

The information on goods-receipt note is transcribed at the computer

department, edited and matched against the outstanding purchase-order.

The information on the pending quantity against a purchase-order and the

stick levels in the inventory management system are updated.

In case of partial delivery, steps 9-14 are repeated several times until the

quantities on the order are fulfilled.

The supplier’s computer, on completion of the order fulfillment, also generates

an invoice by printing it, which, in turn, is dispatched to the

buyer/manufacturer.

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Conventional Trading Process- contd.The supplier’s computer also generates a financial statement at the end of the

trading month for the payments.

At times, it also keeps on sending the reminders for the payment till complete

payments have been received from the buyer.

The buyer’s computer enters the information on the payment (demand)

statement, matches it against the purchase order, and also matches it

against the information provided by goods-receipt note or, in other words,

ensures that the order has been fulfilled and has been inspected and

accepted.

If every thing is found in order, the buyer’s computer processes it for the

payment.

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What is EDI?Electronic Data Interchange (EDI) is the exchange of business documents between

any two trading partners in a structured, machine-readable form.

It can be used to electronically transmit documents such as purchase-orders,

invoices, shipping bills, receiving advices and other standard business

correspondence between trading partners.

EDI can also be used in exchanging financial information and payments in

electronic form.

The Electronic Fund Transfer (EFT) systems used by the financial institutions are

a prime example of the application of EDI in the Banking and Financial

sector. 10

What is EDI?

The Webopedia defines it in the following form:

• “Electronic Data Interchange, the transfer of data between

different companies using networks, such as the Internet. As

more and more companies get connected to the Internet, EDI is

becoming increasingly important as an easy mechanism for

companies to buy, sell, and trade information. ANSI has

approved a set of EDI standards known as the X12 standards.”

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What is EDI?

By National Institute of Standards and Technology:

• “EDI is the computer-to-computer interchange of strictly

formatted messages that represent documents other than monetary

instruments. EDI implies a sequence of messages between two

parties, either of whom may serve as originator or recipient. The

formatted data representing the documents may be transmitted

from originator to recipient via telecommunications or physically

transported on electronic storage media.”

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What is EDI?

The Electronic Commerce Technical Assistance Group defines it in

the following manner:

• “Electronic Data Interchange (EDI) is the computer-to-

computer exchange of business data in standard formats. In

EDI, information is organized according to a specified format

set by both parties, allowing a "hands off" computer transaction

that requires no human intervention or re-keying on either end.

The information contained in an EDI transaction set is, for the

most part, the same as on a conventionally printed document.”13

key features

• The electronic exchange of information

The electronic exchange of information requires presence of direct or indirect

interconnection between the involve partners.

• Standard formats or business forms.

The typical business forms used in the EDI include, Schedules, Purchase Orders,

Acknowledgements, Delivery related documentations, Receipt notes, Invoices,

Remittance requests, payments through Electronic Fund Transfers, Bills of Lading,

Manifests and Reconciliations and many others depending upon the application area.

Among the trading partners the above mentioned documents have to follow some

standard format. The standardization of the format helps in exchanging these

documents with trading partners that may have heterogeneous computing

environments. 14

Building Blocks of EDI Systems: Layered Architecture

Application/ Conversion Layer

Standard Formats Layer EDIFACT or ANSI X12

Data Transport Layer Email, FTP, Telnet, HTTP,

X.435(MIME)

Interconnection Layer Dial-up lines, Internet, I-way, WAN

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Application LayerIt consists of the actual business applications that are going to be connected

through the EDI systems for exchange of electronic information.

These applications may use their own electronic record formats and

document formats for storing, retrieving and processing the

information within the company systems.

For EDI to operate, they need to convert the internal company document

format to a format that can be understood by the system used by the

trading partner. When the trading partners are small in number, then

the converters for various partner formats can be built.

But, as the number of partners with different internal formats increase, the

task of building converters for each proprietary format to other format

becomes overwhelming. 16

Converters : Many to Many Approach

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Format-1

Format-3 Format-4

Format-2

Converters between formats

Standard Format Layer

The application layer relies on common agreed formats for operation.

Thus, the second important and critical building block of the EDI

system is standards for the business documents/forms. Over a

period of time, two major EDI standards have evolved.

The first, commonly known as X12, was developed by Accredited

Standards X12 committee of American National Standards

Institute (ANSI) and

The second, the International Standard was developed by United

Nations EDI for Administration, Commerce and Trade (EDIFACT)

standard.18

Standard Format Approach

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Format-1

Format-3 Format-4

Format-2

Common Formats Approach

Common Formats

ANSI X12 StandardX12 devised the standards to deal with transactions such as purchase-order

placement, order-processing, shipping, invoicing and payments etc.

The paper documents related to particular business activities are mapped

into a transaction set.

The X12 standard defined a set of documents, referred to as transaction sets,

for a wide range of business transaction forms. Each transaction set is

given a numeric code which is similar to the way in most of the paper

forms where form numbers are assigned.

A transaction set is a term used in X12 standard for defining the transfer of

single document (purchase order, Manifest etc.) between the

computers of two trading partners. 20

ANSI X12 Standard

Document Title Transaction Set Specifications

Purchase Order 850 X12.1

Invoice 810 X12.2

Request for Quotation (RFQ) 840 X12.7

Response to RFQ 843 X12.8

P.O. Acknowledgement 855 X12.9

Ship Notice/Manifest 856 X12.10

Order Status Inquiry 869 X12.11

Receiving Advice 861 X12.12

Price Sales Catalog 832 X12.13

Planning Schedule/Material Release

830 X12.14

Trading Partner Profile 838 X12.17

Shipment Information 858 X12.18

Order Status Report 870 X12.23

Price Authorization Ack/Status

845 X12.27

Inventory Inquiry/Advice 846 X12.28

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EDIFACT StandardPromoted by United Nations Economic Commission, which is responsible for adoption and

standardization of the messages. The International Standards Organization (ISO) has been

entrusted with the responsibility of developing the syntax and data dictionary for the EDIFACT.

The EDIFACT serves the purpose of trans-border standardization of the EDI messages.

It combines the efforts of American National Standards Institute’s ASC X12, Trade Data Interchange

(TDI) standards developed and deployed by much of Europe and United Kingdom.

The GE.1 group of UNECE/EDIFAC deals with data elements, and rules and formats for automated

data exchange. The GE.1 group coordinates the six EDIFACT boards set up for Western Europe,

Eastern Europe, Pan America, Australia/New Zealand, Asia and Africa. Asia EDIFACT board (AEB)

consists of members like India, Japan, Korea, Hong Kong, China, Singapore, Taiwan and

Malaysia.

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Data Transport Layer

The data transport layer consists of services that automate the task of

electronic transfer of messages.

The Electronic Mail exchanged through the network infrastructure has

emerged as the dominant means for transporting the EDI

messages.

The electronic mail is used only as a carrier for transporting the

formatted EDI messages by the EDI Document Transport Layer.

ITU-T has adopted X.435 (X.400-based) standards to support electronic

data interchange (EDI) messaging.

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Data Transport LayerX.435 standard consists of definition of normal EDI messages and a set of EDI

"notifications" to address the security requirement.

In order to achieve equivalence to the security control offered by the paper-based

systems, it has three types of notifications.

• A positive notification – It indicates that the recipient has received the

document and accepts the responsibility for it;

• A negative notification- It indicates that the recipient received but refused to

accept the document. The reason for refusal is attached with the notification.

• A forwarding notification- It indicates that the document was received, but

forwarded to another recipient.

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Inter Connection LayerInter Connection LayerIt refers to the network infrastructure that is used for the exchange of

information between trading partners. In the simplest and most basic form it may consist of dial-up lines,

where trading partners dial-up through modem to each other and connect to exchange the messages as illustrated in the following:

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Phone Exchange

Inter Connection LayerInter Connection LayerThe leased lines and I-way, Internet or any reliable network

infrastructure that can provide ability of interconnection can be used.

Through the interconnection, the EDI partners are able to achieve document exchanges between themselves:

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Communication Network

Dial up/leased line

Dial up/leased line

Value Added Network (VAN)VANs are third-party communication networks established for exchanging

EDI traffic amongst the partners.

Various businesses (trading partners) subscribe to the VAN services. For

every subscriber, the VAN maintains an account, which serves as an

electronic post office box for the subscriber, for sending and receiving

the EDI messages.

The subscriber’s account receives and accumulates all incoming mail from

other partners that can be viewed by the account owner as and when

they connect to the VAN account.

There are a number of third-party Value Added Network providers in the

market place. Many of the VANs today, also offer the document

exchange ability of EDI documents with other VANs. 27

Value Added Network (VAN)

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Translation, Editing, Compliance checking, verification, Format translation, Alerting services, Storage and

Mailbox

Value Added NetworkVAN

Dial up/leased line

Dial up/leased line

Producer

Transport

Bank

Trader

TraderTrader

Services Provided By The VANDocument conversion from one standard to another; typically required when two trading

partners use different standards for EDI Exchanges i.e. ANSI ASC X12 to EDIFACT or

TDCC  to ANSI ASC X12;

Converting one ANSI ASC X12 document to another ANSI ASC X12 documents; often within

the same system the documents may need to be converted to another type. For

example, a Motor Carrier Details & Invoice (210) document may need to be converted

to Generic Freight Invoice (859).

The sender may follow certain conventions that are different from receiver. Translation from

a sender's conventions of a standard document to the  receiver's conventions; i.e

• translate field separators,

• discard unwanted characters

• format translation from EDI standard to or from flat file, flat file to flat file, 

XML, and other formats

• data translation among the PDF, XLS, MDB or other web-based documents 29

Value Added Network (VAN)

The appropriate customer data can be saved in the VAN account and later appended on

messages where needed. For example, sender’s Bill of Lading (BOL) number can be stored

in the account and upon receipt of the BOL acknowledgment (997), an acknowledgment

message including  BOL number can be created and transmitted to sender.

VAN provider’s computers also store data such as customer profiles, repetitive waybill codes, etc

which can be used for filling up the EDI transaction document help of customer profile code.

The customer profile stored on the VAN can be accessed using the customer profile code

and the data from the profile stored on the VAN can be used for completing the EDI

transaction.

The subscribers can interactively enquire about the status of any EDI transactions made by them.

Subscribers can receive “verify acknowledgments” in the mailbox even when they are not online.

The VAN can alert the subscriber (receiver) that there is data in their mailbox to be picked up

through means such as:

• By sending a fax notification

• By calling a pager or other alerting device that signals users about the waiting mail

in the mailbox 30

Value Added Network (VAN)• The VAN can capture the specified data from transaction which, in turn, can be used

for generating customer-specified reports.

• The subscriber may specify the editing requirements, VAN can edit for

completeness and correctness as per requirements. For example, it can verify that

the line item charges on an invoice add up to total value shown on the EDI invoice

• In situations where such missing or mismatching data is found during the edit

process, the VANs usually send messages to the originator informing it about the

missing/mismatched data and request re-transmission of the same; For example in

ASC X12, upon receipt of Shipment Status Message (214) with missing data, send a

Status Inquiry (213) transaction to carrier requesting correction and re-transmission.

• Validate and verify the information stored in customers’ databases for missing data

and send messages to appropriate firms requesting correction of the missing data.

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Third Party VAN Providers.

GEIS- Operated by General Electric of USA, has presence in over 50 countries.

Cable & Wireless- Highly reliable with a subscriber base of over 2000 top companies of the world, holds nearly 8% market share of global VAN market.

GNS – It is one of the largest Value Added Network and has presence in 36(? Check internet) countries.

Transpac – A France based EDI VAN provider owns the largest domestic VAN market share and has strong presence in Europe. It uses Infonet for offering VAN service outside the domestic domain.

Infonet- VAN service jointly owned and operated by WorldComm, Singapore Telecom and Transpac. The owning organizations themselves offer VAN services in the local domains and cover rest of the world through the Infonet.

Satyam Infoway – The private national Internet Service Provider (ISP) offers EDI VAN services in India, in association with the Sterling Software of USA. In addition to the standard VAN services, it offers Web EDI VAN services as well.

NICNet – The National Informatics Center, has established connectivity through 600 points of presence in India. The NICNet in late 1999 started offering Value Added Network (VAN) Services to facilitate and encourage the EDI adoption in India. Some of implementations of EDI in India: Indian Customs, Port Trust and Apparel Export Promotion Council use the NICNet VAN.

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Benefits of EDI-

• Reduces Lead Time • Improves Coordination with Suppliers• Reduces Redundancy• Expands the Market Reach• Increases revenue and sales

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